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Professor Timothy Connerton
Yelshaday Gebreselassie
Strategic Management Final
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Date May 5, 2018
Adam Aircraft Case Study Analysis
1. Background
Industry Profile
– Between 1978 and 1992, the aviation industry in general had suffered a 95 percent
unit sales decline and a loss of over 100,000 jobs.
– Not much has changed in the small aircraft industry and as a result, people were
buying planes manufactured in the 70s and 80s. This is was also because they are
cheaper than new models.
Adam Aircraft
The idea for starting Adam Aircraft came when Rick realized that most of the small
aircraft on the market are old ones and unsafe and that wherever he went, pilots were
talking about how there were a lack of new products.
In formulating strategies to start Adam Aircraft, Rick had to ask himself very important
questions such as “why hasn’t anyone done this before?” and “What can he see that
others don’t?” So he looked some other companies such as BeechCraft Corporation
whose twin-turboprop failed because it was too heavy and expensive and
anothercompany by the name GO Corporation whose founder Jerry put $50 million
into PalmPilot which ended up looking like a brick. Both of these failed because their
ideas were ahead of the prevailing technology. As a result, he believed that he has to
have all the right ingredients to make it all happen. He also realized that even though
there are quite a few single-engine, nonpressurized, fixed-gear startups, nobody was
able to bring an innovative product into the middle market.
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Finally, Rick came to the decision that pilots wanted twin-engine planes and put a
million dollars to start the company in 1998.
Adam Aircraft’s operational performance was very high because even though they are
a small company relative to the likes of Boeing, they used the power of computing
available at the time and they were able to cut development costs by 75 percent. This
enabled them to make aircrafts such as the A700, which has attractive prices, and
lesser operating costs so that the average business traveler could afford the service.
2. Key issues and questions
– What are they?
One of the key issues is whether Adam Aircraft has what it takes to succeed where so
many other startups have failed. The reason why this exists is because the aircraft
manufacturing industry is highly competitive and also companies need enormous amount
of capital to join this industry in the first place.
Another issue is whether Adams Aircraft could continue to advance towards certification
and full-production capability or the challenges will be so strong that they would even
discourage the most enthusiastic investors. This is a result of the lengthy and time-
consuming certification process by FAA which is preventing them from getting their
planes to customers on time.
– Key players and how they fit into the issues
Some of the key players are John Hamilton, vice president of marketing, Rick, founder of
Adam Aircraft, John Knusen, a partner and former FAA trial attorney, Mike Smith who is
the CFO of Adam Aircraft. The management also consists of other pilots who bring rich
experiences to the table. Adam Aircraft can leverage this to become more competitive in
the small aircrafts industry.
3. SWOT
– Strengths ; distinctive competencies
o High morale and low attrition rate of employees
o A very experienced management team constituting former pilots
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o The ability to send their documents electronically to the FAA which cuts back
on time and money lost.
o An R;D center with all the capabilities the big players such as Boeing and
McDonnel have.
o High efficiency in design and production because of an institution of a 24 hour
scheduling.
– Weaknesses
o Shortage of cash to bring its products to the market
o They had limited time in terms of manufacturing their planes, getting them
certified and bringing them into the market which is why they were obsessed
with innovation to circumvent this ad other limitations.
o The fact that they were new to the market also meant that they had to be
perfect and outsmart their close competitors.
o They were forced to cut aircraft development cost by 75 percent because the
development of a new airplane cost as high as $250 million.
– Opportunities
o There was high demand for small airplanes. Rick would go to parties and hear
pilots talk how there is a lack of new products on the market and how old
airplanes, even though they were cheaper, were unsafe to fly.
o The tooling mill they had enabled them to save millions of dollars and time it
took for tooling if it were done by other parties.
o The computer technology which was available to the big players was also
available to Adam Aircraft which enabled them to do the designs on a
computer. As a result of this, they were able to set up a 40-station CAD/ CAM
engineering center. This enabled them to keep the entire design process in-
house thereby cutting back on time and money.
– Threats
o Lack of investors who are willing to invest in the aviation industry
o Very stringent requirements by FAA before certifications can be issued
o The fact that many have tried and failed to make it in starting an airplane
manufacturing company
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4. Porter’s Five Forces Analysis
– Rivalry among competing sellers (Industry dynamics and trends)
By the 1990s, there were a number of well-financed firms who were competing to
introduce personal jets into the middle market space by 2006, which included Lancair
and Cirrus who have been very successful in entering a very stagnant aviation
industry. Existing big players such as Boeing, McDonnel, Douglas and others, with
considerably higher resources and capabilities at their disposal, also pose significant
competitive pressures on Adams Aircraft. As a result, we can say industry competitive
rivalry is very high.
– Bargaining power of buyers
For products such as A500 and A700, there are two types of markets. Owner flown
and professional flown. The former are focused on their own needs such as handling
characteristics, electronic systems and more importantly serviceability since they
themselves manage scheduled maintenance requirements while the latter are
focused on the needs of their client-passengers such as whether the seats are
comfortable, how much baggage area is available and so on. Since there are
companies such as Beechcraft, Piper and Cessna who have been around and built tons
of airplanes, it was important that Adams Aircraft should differentiate itself, providing
top after-sale services to its customers or otherwise they would fail as many other
startups did. As we can see, customers can be picky and this in combination of other
already existing players with rich experiences easily enables customers to look for
somewhere else. This makes the bargaining power of buyers high.
– Bargaining power of suppliers
The bargaining power of suppliers is very high. There are only a few of them and have
already deals with big players such as Boeing.
– Threat of new entrants
The threat of new entrants is very low. This is not only because the industry requires
a huge startup capital but also the fact that many tried and miserably failed acts as a
barrier in itself. Even if companies or individuals possess the finances needed to start
an aircraft manufacturing company, it is very difficult to compete because there is
dynamics in the industry and the risks are very high.
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– Threat of substitutes
The threat of substitutes is moderate. There are quite a few light jets produced by
companies such as Avocet, Eclipse and Safire but as long as Adam Aircraft
distinguishes itself by exploiting its core competencies mentioned in the SWOT
analysis, the threat should remain minimal
5. PESTLE Analysis
– Political
Factors that affect the airline industry can affect the aircraft industry. Some of the
political factors that may affect Adam Aircraft are “open sky policies” especially for
business travelers, who fly across borders.
– Economic
The increasing demand for small airplanes is a positive factor working for Adam
Aircraft while the rising cost of fuel may increase operation costs.
– Social
Over the years, the emergence of business travelers/ companies has resulted in a few
social changes in terms of what kind of travel experiences they are looking for. Usually,
private owners or companies need aircrafts that are low-priced but comfortable with
minimal operational costs.
– Technological
In terms of technology, the 1990s has brought with it huge advances in computing
power and computer-aided design and modeling. So, by the end of the 1990s, physical
scale models were being replaced by computational fluid dynamic software.
– Legal
The General Aviation Revitalization Act (GARA) was introduced in 1994 and it had
resulted in the revitalization of the aviation industry which was nearly wiped out by
twenty years of lawsuit abuses.
– Environmental
Climate change and global warming are important concerns in the aviation and the
airline industry. If everyone is taking airplanes to wherever they want to fly, it will
contribute immensely contribute to global warming and subsequently climate change.
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Potentially, in the not so distant future, there could be laws that restrict the number
of private and company airplanes on the air.
6. Alternative courses of action
– Develop a good marketing strategy
– Secure funding from investors/ venture capitalists
– Form partnerships to get additional funds
7. Conclusion
Partnerships and joint ventures are risky at the moment because Adam Aircraft is only
beginning to get on its feet and by forming partnerships, the risk of failure is very high.
From the case study, we can see that the development of A700 will be a successful project
and this will definitely attract investors to put money into the company, which it will use
to bring its products to the market.
Working on an extensive marketing is also important because, for example, owners of
airplanes especially private owners need to know that they can get excellent after-sale
services.
